Crown Corporations in Canada

Crown Corporations are an integral part of Canada’s social, political, and economic landscape. The purpose of this article is to provide a general introduction to the nature of Crown Corporations in Canada. In so doing, this feature examines the history of Crown Corporations, their role in Canadian society, how they operate, and key issues relating to them.

An overview of key Canadian Crown Corporations

Balancing free market principles and the public interest

List of article sources and links for more on this topic

What are Crown Corporations in Canada?

Basic nature and purpose of Crown Corporations in Canada

Crown Corporations as State-controlled Enterprises

Generally speaking, Crown Corporations are companies or enterprises that are owned by the state or government. Crown Corporations can be contrasted with their private counterparts in that private corporations are privately owned, and are operated to serve the interests of those parties that own them. In contrast, Crown Corporations are owned by the state, and are meant to serve some public interest defined by the government of the day.

In Canada, Crown Corporations are created and operated by both the federal and provincial/territorial governments. Federal Crown Corporations are owned by the Government of Canada, and are meant to serve some “federal” or “national” interest. Provincial/Territorial Crown Corporations, by contrast, are owned by their respective provincial or territorial government, and are meant to serve some “provincial” or “regional” interest.

Crown Corporations and the Canadian Monarchy

Why are these state-owned enterprises referred to as “Crown” Corporations? The reason lies with the monarchical traditions of Canadian government. In Canada, sovereign power lies with the Canadian Monarchy; this means that the legal and symbolic source of political authority in Canada is the nation’s King or Queen (or the “Crown”).

All state institutions and property is, technically speaking, operated in the name and interests of the Crown. This is symbolized in the name of many state institutions and property. Public prosecutors, for example, are called “Crown Prosecutors,” while state-owned lands are called “Crown Lands.” In the case of state-owned enterprises, these are referred to as “Crown Corporations,” symbolizing that they are owned by, and operated in the interest of, the Canadian sovereign (the Monarchy or Crown).

It is important to remember, however, that this concept of Crown ownership is largely symbolic. The Canadian Monarch does not personally own state property, nor does he or she actually have a say in how it is used or operated. Instead, state-owned properties, such as Crown Corporations, are managed by the elected governments – be it either the federal or provincial/territorial governments.

Purposes of Crown Corporations

Crown Corporations are created and operated by governments for a number of different reasons. The following is a brief survey some possible purposes for Crown Corporations.

Providing an essential good or service: A government may create a Crown Corporation to provide some essential good or service that is otherwise unavailable in the domestic Canadian economy. Canadian National Railways, for example, was created as a federal Crown Corporation in 1918 to ensure key national and regional transportation links following the failure of several private railway lines.

Fostering economic development: Another reason for creating Crown Corporations is to foster domestic participation in a particular economic industry or sector. In this context, the idea is that the Crown Corporation can act as a “springboard” or “nurturer” for broader economic development in the national or regional economy. An example of this is Export Development Canada, a federal Crown Corporation that assists the Canadian export sector by providing services and financing to business.

Regulating sensitive industries: Governments may also create Crown Corporations to ensure public control over sensitive industries, in particular, those that may impact national security and/or safety. An example of this sort of Crown Corporation is the federal Atomic Energy of Canada Limited, which has the responsibility of managing Canada’s national nuclear energy research and development program.

Unity and nation building: Another key reason for creating Crown Corporations is nation building by fostering national unity and a sense of common identity. The idea is that Crown Corporations can be used to preserve cultural uniqueness and to unite geographically and socially disparate communities. Examples range from cultural and communications organizations such as the Canadian Broadcasting Corporation (CBC) or the Canadian Race Relations Foundation, to transportation and infrastructure corporations such as VIA Rail.

Operation of Crown Corporations in Canada

Who is in charge and how do Crown Corporations function?

The following section provides an overview of the basic administrative structures and relationships for Crown Corporations at the federal level.

Heads of Crown Corporations

While federal Crown corporations are wholly owned by the Government of Canada, they are usually structured like private or independent enterprises. While government ministries, departments, and agencies fall under the control of democratically elected government officials (or ministers), Crown Corporations fall under the control of appointed board members, directors, and managers. These appointed heads are responsible for the day-to-day administration of their respective Crown Corporations.

Crown Corporations and the Government

The Government (more specifically, the Prime Minister and Cabinet) plays a central role in the administration of Crown Corporations. Cabinet controls the appointments for Crown Corporation boards of directors and senior officers, a process that is often controversial – and customarily fraught with allegations of political patronage. Cabinet also controls the salaries of Corporation appointments as well as dismissals.

Further, the legislation governing Crown Corporations often empowers the Prime Minister’s Office to issue directives, allowing the government to order a Crown Corporation to implement particular government policies. Generally speaking, Crown Corporations operate at some arm’s length from government, the idea being that “political interference” can detrimentally impact the effective operation of a Crown Corporation. However, high levels of intervention can occur when a Crown Corporation is acutely relevant to a government’s goals and objectives.

Crown Corporations and Parliament

When a Crown corporation is created, Parliamentpasses legislation establishing its mandate. Parliament also approves the tabled budgets of Crown Corporations and any government-requested funds to cover operating deficits. In addition, Parliament reviews the annual reports of Crown Corporations, queries responsible ministers during Question Period, and discusses corporate performance with ministers and senior management in Parliamentary committees. Parliament must also approve any amendments to the legislation that governs a given Crown Corporation.

The Financial Administration Act (FAA)

The Act organizes Crown Corporations according to three “schedules” or types: departmental, agency, and proprietary. Each performs different functions and enjoys a different relationship with the government. Departmental Crown Corporations (such as the Canadian Race Relations Foundation) perform no obvious commercial function and are treated the same as government departments; agency corporations with limited commercial functions (such as the Atomic Energy of Canada Limited) are accorded greater freedom, while proprietary corporations (such as former Crown Corporations Air Canada, CN Rail, and Petro-Canada) enjoy the greatest autonomy in financial matters.

The Act requires agency and proprietary corporations to submit annual capital budgets to the responsible minister, the Finance Minister, and the President of the Treasury Board. The budgets need the approval of all three ministers, as well as Cabinet, and ultimately Parliament. Agency corporations also submit operating budgets for approval to the responsible minister and the President of the Treasury Board.

Crown Corporation Reform (1984)

An enduring debate about the role, necessity, independence, and functioning of Crown corporations has led to the privatization of some Crown Corporations as well as efforts to reform the way Crown Corporations work. To this end, in 1984 Parliament passed amendments to the Financial Administration Act. The amendments established new schedules, extended Cabinet's capacity to issue directives, and underscored the notion that Crown Corporations cannot establish nor dispose of subsidiaries without Cabinet approval. This legislation also clarified the budgetary approval processes pertaining to Crown Corporations, and provided for the submission of corporate plans to Cabinet (for its approval) and to Parliament (for discussion).

Prominent Crown Corporations in Canada

An overview of key Canadian Crown Corporations

Crown Corporations operate in a variety of sectors to achieve various economic and social objectives. The following section provides brief introductions to some prominent Crown Corporations in Canada.

Canadian Broadcast Corporation

The Canadian Broadcasting Corporation (CBC) is among the biggest Crown Corporations involved in communications and culture. The CBC is Canada's public-owned radio and television broadcaster. In French, it is called la Société Radio-Canada (Radio-Canada or SRC). The umbrella corporate brand is CBC/Radio-Canada.

The CBC is the oldest broadcasting service in Canada, established as a Crown Corporation on November 2, 1936. Radio services include CBC Radio One, CBC Radio Two, La Première Chaîne, Éspace musique, and the international radio service Radio Canada International (RCI). Television operations include CBC Television, Télévision de Radio-Canada, CBC Newsworld, le Réseau de l'information (RDI), and CBC Country Canada. The CBC also operates a digital audio service called Galaxie and two websites, one in each official language.

The CBC is mandated to provide “distinctively Canadian” programming that reflects Canada’s national and regional audiences and provides English and French programming of equivalent quality. The Corporation must also “contribute to shared national consciousness and identity” and “reflect the multicultural and multiracial nature of Canada.”

In 2005-06, the CBC received approximately $1.1 billion to operate its television and radio stations but also received $522 million in revenue from advertising and other sources. The CBC is governed by the Broadcasting Act, 1991, and is directly responsible to Parliament through the Department of Canadian Heritage.

VIA Rail

VIA Rail, Canada’s nation-wide passenger rail service corporation, is a prime example of a public sector commercial transportation enterprise. VIA Rail was incorporated in 1977 and runs trains across Canada. According to its website, it serves 3.9 million passengers per year, employs over 3,000 personnel, runs 480 trains per week (300 of which operate in southern Ontario and Quebec), and maintains 14,000 kilometres of track running into 450 Canadian communities.

In recent years, VIA Rail has endured a number of budget cutbacks. The VIA Rail budget was first cut in the early 1980s by the Trudeau Liberal government. While the Mulroney government in the mid-1980s restored some funding, it then further cut VIA Rail's federal funding in its 1989 budget, eliminating key routes in the process. Subsequently, the Chrétien Liberal government made further cuts to VIA Rail's budget in 1994. In 2003, Transport Minister David Collenette announced plans for a renaissance of VIA Rail – a plan that was subsequently shelved by the Martin Liberal government.

While VIA Rail is an independent federal Crown Corporation mandated to operate as a business, it is limited by the fact it was created by an Order-in-Council of the Privy Council Office(essentially, a government department that serves as an extension of the Prime Minister's Office), and not as a result of actual legislation passed in Parliament. An Order-in-Council is used to carry out decisions made by Cabinet or the Prime Minister’s Office that do not require the approval of Parliament. If VIA Rail’s mandate was backed by legislation, the company could be permitted to seek funding on open money markets as other Crown Corporations such as CN have done in the past. Accordingly, VIA Rail’s funding situation – which many observers characterize as unstable – is especially vulnerable to political decision-making.

In 2004, VIA Rail gained unwelcome notoriety in the aftermath of the release of Auditor General Sheila Fraser’s report surrounding the so-called Sponsorship Scandal; several VIA officials were implicated in the misappropriation of government funds to federal Liberal Party supporters.

Canadian Air Transport Security Authority

The Canadian Air Transport Security Authority, created in 2002, serves as another example of a Crown Corporation involved in the transportation sector. CATSA manages several key aviation security services in Canada previously provided by airlines, airports, and other companies, but perceived to be inadequate after the September 11, 2001 terrorist attacks in the United States.

Export Development Canada

As mentioned, Crown Corporations are also involved in finance and economic development projects. One example is Export Development Canada (EDC), which is mandated to cultivate export markets for Canadian products and businesses. Created in 1969, EDC provides trade finance and risk management services to Canadian exporters and investors. EDC also supplies credit to foreign governments, banks, and corporations. It guarantees loans and issues commercial and political risk insurance to Canadian exporters. EDC provides these services in circumstances where commercial lenders and insurers, cognizant of the extreme financial and political risks, deny coverage, or provide coverage at higher rates.

Crown Corporations and Privatization

Balancing free market principles and the public interest

Crown Corporations were widely popular government creations during most of the 20th century. However, since the 1980s, the relevance of Crown Corporations has declined, with many being privatized (or sold to by government to private parties). This included Canadian National Railways, Air Canada, and Petro-Canada, as well as several provincial/municipal utilities. Associated with this trend is a debate over whether or not privatization of Crown Corporations is beneficial or detrimental.

Arguments for Privatization

Arguments in favour of privatization take many forms. One position is that Crown Corporations are inherently poor business performers, as governments have few incentives to ensure the enterprises they own are well run. Whereas private owners will lose money if their businesses are run poorly, this view contends that public money can sustain even the most inefficient enterprise. Moreover, the government may put off making any improvements to a given corporation due to political sensitivities (even when the Crown Corporation is well run). Similarly, governments are prone to “bailing out” poorly run Crown Corporations when it may be better to let a corporation fold.

Another argument for privatization focuses on the opportunities for government corruption and patronage through Crown Corporations. To this end, in 2004 VIA Rail gained unwelcome notoriety in the aftermath of the release of Auditor General Sheila Fraser’s report surrounding the so-called Sponsorship Scandal; several VIA officials were implicated in the misappropriation of government funds to federal Liberal Party supporters.

Arguments against Privatization

This all said, there are many who feel that privatization is a short-sighted and ultimately detrimental policy approach. In this vein, supporters of Crown Corporations argue that publicly owned enterprises can exhibit a large degree of public accountability, which is particularly important in cases where a corporation offers goods or services that are vitally important to a society. As Crown Corporations are owned and operated by governments beholden to voters, citizens can influence the operation of Crown Corporations through their political participation. Such accountability is not present in private corporations, whom are beholden only to their private shareholders.

Supporters of Crown Corporations also customarily take the position that not all good things are profitable. A Crown Corporation may provide public goods or services that, while important, are not necessarily financially profitable. This would include important cultural goods, such Canadian television and radio content produced and transmitted by the Canadian Broadcasting Corporation.

Finally, those who favour Crown Corporations also point to the potential benefits of state intervention in the economy. Crown Corporations such as Export Development Canada assist Canadian businesses in the export industry, with the aim of growing the economy and increasing employment in Canada.